Zip It

Ever since the news broke that investigators working for Hewlett-Packard had engaged in a series of unsavory (and possibly illegal) tactics in an attempt to discover which members of its board of directors were leaking information to the press, attention has focussed on the scandalous investigative methods that were used. This isn’t surprising: the decision to sic the gumshoes on the leakers was an act of spectacularly bad judgment, and the consequences have been appropriately severe. HP’s chairman of the board resigned, California’s attorney general claims that he has enough evidence for indictments, and last week Congress allocated two full days of hearings to the subject. Amid the uproar, though, something important has been forgotten: the leaks were a serious problem. HP was wrong to resort to Plumbers-style snooping but right to think that the leaks needed plugging.

Leaks from a company’s board of directors are a problem because they magnify the decision-making flaws that have plagued boards for their entire institutional history. Boards are supposed to be vigilant monitors of management and stewards of long-term strategy. But, as Franklin Gevurtz, a law professor at University of the Pacific, has shown in a recent article, there have always been complaints about the supine nature of boards and the unwillingness (or inability) of directors to actually direct. In “The Way We Live Now,” published in 1875, Anthony Trollope describes a board meeting at the company run by the fraudster Melmotte: “Melmotte himself would speak a few slow words . . . always indicative of triumph, and then everybody would agree to everything, somebody would sign something, and the ‘Board’ . . . would be over.” Not much had changed by 1971, when the Harvard Business School professor Myles Mace said that most directors were little more than “ornaments on a corporate Christmas tree.” And, historically, boards were often packed with corporate insiders and cronies of management. (When Michael Eisner was the C.E.O. of Disney, his board for years included his personal attorney and the architect who designed his house.)

Over the past two decades, though, and especially after the major corporate scandals of 2001 and 2002, much effort has gone into improving board performance. A checklist of good board characteristics—not having the C.E.O. also serve as chairman of the board, increasing the number of outside directors, and so on—has been put to use. Since 2001, the number of new independent directors appointed at major corporations has risen sharply, and more than eighty per cent of all directors now qualify as independent.

These are welcome improvements, but they’re not enough to reform boards. (Enron’s board, after all, was full of independent directors.) Successful boards require what Jeffrey Sonnenfeld, a professor at the Yale School of Management, calls “a culture of open dissent,” where members are free to criticize the C.E.O. and each other, and where there is no artificial attempt to impose consensus on the group. This is hard to achieve, because dissenting opinions often get interpreted as personal attacks. Social scientists like to say that good decision-making groups engage in “task conflict,” fighting over the best solutions to particular problems, while bad ones engage in “relationship conflict,” interpreting differences of opinion as differences of character. But, as Tony Simons and Randall Peterson, of Cornell, mention in a study of seventy top management teams, groups that engage in “task conflict” also often suffer from “relationship conflict.” In other words, it seems you can be collegial and friendly and make bad decisions, or you can be locked in a room with people who can’t stand each other and make better decisions.

Simons and Peterson identified a surprisingly simple way out of this dilemma: trust. They found that groups whose members trusted one another’s competence and integrity were more likely to engage in task conflict without succumbing to relationship conflict. Paradoxically, the more people trust one another, the more willing they are to fight with each other. And this is why the leaks at H.P. were a problem: they undermined the sense of trust and solidarity that a board needs to be effective. The original leaks came in 2005, when the board was debating the future of its then C.E.O., Carly Fiorina, and they were clearly an attempt to spin the debate over Fiorina toward the position the leaker favored. In other words, they were meant to bring outside pressures to bear on board decisions, and to put the interests of individuals above those of the group. The later leak, which provided details of long-term strategy discussions at a board retreat, was relatively anodyne, but it violated an agreement that board members had made not to disclose private information, and so insured further erosion of trust. In addition, the violations of confidentiality have made people less likely to speak openly. The leaks both magnified the possibility of relationship conflict and diminished the chances of open dissent.

In some contexts, leakers can foster independent thought and thwart nefarious cover-ups—as in, say, the case of the Pentagon Papers—and whistleblowers have often exposed unethical or illegal corporate behavior. But in the boardroom the usual effect of leaks is to stifle independent thinking and encourage cautious, self-protective opinions. They also make it more likely that C.E.O.s will once again try to fill boards with cronies whose main qualification is the ability to keep their mouths shut. Loose lips don’t just sink ships. They can put a pretty good dent in companies, too.

James Surowiecki is the author of “The Wisdom of Crowds” and writes about economics, business, and finance for the magazine.